‘Shipshape 10’ News for Week Ending May 28th, 2017

Posted on May 27, 2017 by Karatzas Marine Advisors & Co.

‘Shipshape 10 List’, a list of news and articles published in the current week that a senior executive in shipping, shipping finance, commodities, energy, supply chain and infrastructure should had noticed; news and articles that are shaping the agenda and the course of the maritime industry.

Sometimes seemingly tangential, periodically humorous, occasionally sarcastic, sporadically artistic, inferentially erotic, but always insightful and topical.

And, this week’s ‘Shipshape 10’:

While lots of shipping hope has been laid at the feet of a Chinese recovery, China’s sovereign debt has been downgraded mostly on concerns of slowing growth:
1. China’s sovereign debt downgraded by Moody’s (Financial Times)

2. China Moves to Stabilize Currency, Despite Promise to Loosen Control (The New York Times)

A seemingly major investor for shipping, but not clear whether there are string attached; in any event, the funding gap in shipping could suck up Dubai’s billion fund in seconds:
2. Dubai looking into forming $1 billion shipping investment fund (Reuters)

Shipping is a commodity b2b business. Od, isn’t it?
Quoting Basil M Karatzas, at Splash 24/7
3. Has Shipping Become Commoditised? (Splash 24/4)

In a weak overall market, mergers in the commodities trading world, and other news:
4a. Sowing Glencore’s Waves of Grain (Bloomberg)

4b. Huntsman and Clariant unveil $20bn tie-up (Financial Times)

4c. Noble Group, a big Asian commodities trader, is teetering

4d. War on Sugar Turns Years of Growth Into Market Tipping Point (Bloomberg)

OPEC had once promised to do ‘whatever it takes’ to drive oil prices higher. This week’s developments from Vienna show that OPEC may not be in charge of the oil markets as it used to be: 5a. OPEC Should Watch Glencore’s Bunge Jump (Bloomberg)

5b. OPEC’s Weakest Link Is Not Who You Think It Is (Bloomberg)

5c. Opec: more of the same (Petroleum Economist)

5d. BP and Glencore warned over bullish fossil fuel forecasts (Financial Times)

5e. Oil market awaits ‘whatever it takes’ details as Opec gathers (Financial Times)

And the reason for OPEC’s dwindling chances controlling the oil markets:
6. New era beckons as Euronav VLCC is first to load US oil (Lloyd’s List)

Soft tanker asset prices have been conducive for M&A activity, with Scorpio Tankers acquiring the Navig8 Products Tankers fleet, creating the biggest player in the sector: 7a. Scorpio Tankers fleet worth $3 bn after Navig8 Product Tankers takeover (Seatrade Maritime)

7b. Scorpio Announces Merger With Navig8 Product Tankers (The Maritime Executive)

While the world of ‘commodity shipping’ is struggling to recover, the cruiseship market has been strong, and China’s prospects in the sector cannot be ignored: 8a. China Tops Two Million Cruise Passengers (The Maritime Executive)

8b. Princess Tells “Chinese Story” Along Silk Road Route (The Maritime Executive)

8c. Greece To Bolster Cruise Capabilities (The Maritime Executive)

The current issue of the Economist is running a series of articles the oceans:
9a. How to improve the health of the ocean (The Economist)

9b. Getting serious about overfishing (The Economist)

9c. Megaprojects threaten Hong Kong’s iconic dolphins (The Economist)

“I will greatly bless you, and I will greatly multiply your seed as the stars of the heavens and as the sand which is on the seashore.” Genesis 22:15-18, and “like the sand of the sea, which cannot be counted” Genesis 32:12. Apparently, sand is not as plentiful these days:

10a. The World is Running Out of Sand (The New Yorker)

10b. An improbable global shortage: sand (The Economist)

Majestic sunset: Piraeus. Image credit: Karatzas Images

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S&P, Newbuilding and Demolition Update (December 24th, 2014) – Dry Bulk Market Focus

Posted on December 25, 2014 by Karatzas Marine Advisors & Co.

Since our last report at the end of September, the overall dry bulk market has dropped by more than 25%; however, when the decline is seen from the interim peak in early of November at 1,484 points to the present reading of 788 points, for the BDI, the index been cut in half (Graph 1).

Graph 1: Baltic Dry Indices since September 1st, 2014; (data source: The Baltic Exchange)

The capesize market as always has been the most volatile component of the BDI index, and it has been on a free fall from the top of 3,781 points on Nov 4^th to 474 points on Christmas’ Eve, equating to less than $5,000 pd in terms of freight rates. Looking back, it was in late fall 2013 when the capesize index was trading at comparably high levels (as high as 4,500 points on an occasion), but 2014 has not been a good year for the dry bulk market overall. The performance of the dry bulk market in 2014 got many market players by surprise, as the consensus thinking had been that the market had found bottom in 2011 and 2012, and since then the trend was expected to be upwardly leading, only the degree of the positively sloping line was a matter of debate. The performance of the dry bulk market has been having a major impact on market activity, both directly and indirectly. For starters, cash flows have been at or below operating levels, thus dry bulk owners have been bleeding cash from running their dry bulk vessels, which obviously is not a good result. Further, given that dry bulk vessel ownership is much wider-ly spread (than let’s say tanker vessel ownership), the pain of negative cash flows is widely felt, affecting many, many owners in absolute terms, financially; and when the cash register of a great deal of owners bleeds cash collectively, momentum and attitude are negatively impacted, thus turning the mood of the overall market sour. Again, the consensus thinking has been that 2014 ought to be a good year and many players had placed accordingly ‘long bets’, thus the negative performance has an amplifying effect on a wide range of prospects from newbuilding orders placed on the assumption of an asset play game (surprisingly, no financing in place for many of these speculative orders) to companies having prepared for IPOs and access to the capital markets, to private equity (PE) funds expecting on building a positive track record with an eye to a quick and profitable exit strategy.

Graph 2: Baltic Dry Indices since January 2013; (data source: The Baltic Exchange)

The dry bulk index started the year in an active way with the tailwinds of last year, and until the middle of spring 2014 (Graph 2), the prospects were looking up; by partying time at Posidonia in June in Greece, the dry bulk market was more than a couple of months in decline; however, owners having built cash reserves during a strong 2013, were holding high hopes and were thinking of bridging the seasonally weak early summer and start trading strongly at the end of the summer. The summer came and left, the fall came and left, and the year came and left, and still no rally to be seen. No predominant cause for the failure to appear for the market rally, but pointers abound: a) for once, world economic growth prospects have been getting revised lower, from the Japanese economy entering recession and the European economy flirting with one too, b) the Chinese economy downshifting seriously on the back of calls for clean air (i.e. burning less coal) and cleaner business policies (i.e. going hard after corruption and self-dealing) and lowering inventories, c) new or stricter export requirements of commodities by several countries (grains in Argentina, mineral export duties in Jakarta) and neutral shipping trends despite a bumper crop harvest in the US, while d) vessel supply kept increasing (approximately 620 dry bulk vessels were delivered in 2014 y-t-d, 320 were scrapped in the same period for a net increase of more than 3% on a world fleet of about 10,000 dry bulk vessels at the beginning of the year).

Despite the fact that hope springs eternal in shipping, dry bulk asset prices has been shifting lower as well. Financing is still hard to find for most shipowners and with freight rates low, potential buyers want to see compelling opportunities to get enticed to open their wallet. In our business practice, we often see buyers’ typical reaction to proposed sale candidate vessels: “the market is at $X mil as per ‘last done’ for this vessel and we would never buy at market, but we would consider offering at market less 5-10%”, which approach has been chipping lower on prices from previously done price levels. While earlier in the year prices were moving in tandem for modern and older dry bulk vessels (usually, independent and smaller owners buy ‘older’ vessels and shipowners with access to the capital market prefer modern tonnage, as a rule of thumb), as of recent, there is a bifurcation in the market as modern vessels have been holding better their prices while ‘older’ vessels have seen a more pronounced drop in asset pricing. It’s hard to pinpoint the widening of the gap between older and modern tonnage, but access to funding and capital markets (where also fees are much higher, and also where there is the need of ‘deal pressure’ and also the need to ‘feed the beast’) may partially explain the price differential. A partial explanation may also be attributed to the strength of the US Dollar (and / or the weakness of the Japanese Yen) which have made the sale of Japanese-controlled vessels more palatable – and, indeed, we have seen more Japanese controlled tonnage for sale in the secondary market in the last few months.

In the capesize market, we have recently seen the sale by Daichi Chuo of MV ‘First Eagle’ (170,000 dwt, 2010, Imabari Shipbuilding) at approximately $41 million to Chinese buyers. In middle November, Daiichi Chuo again disposed of another larger-sized bulker MV ‘First Ibis’ (180,000 dwt, 201, Universal S.B.) at $45 mil to same buyers, clearly indicating that the price of ‘First Eagle’ is a meaning step-down in pricing, after adjusting for size. As a matter of comparison, Daiichi Chuo again sold another capesize vessel in April this year, MV ‘Shanganfirst Era’ (181,000 dwt, Koyo Dock K.K, 2010) at approximately $54 mil to Greek buyers (Golden Union), which makes clear the asset pricing trend between spring and fall this year. Just recently, publicly listed Diana Shipping announced the acquisition of a 2015-built vessel at $50 mil (Hull No BC18.0-51, 180,000 dwt, Beihai Shipyard, 2015); interestingly, Diana also announced this week in a press release the chartering of one of their 2010-built capesize vessels MV ‘New York’ (177,000 dwt, SWS, 2010) to Clearlake for a period of 14-18 months at $12,850 pd less 5% commissions – it would seem that there is still a big disconnect between asset pricing and freight market, unless there is strong conviction for a market recovery. Back in November, Alpha Tankers and Freighters of Greece acquired from Lauritzen Bulkers the vessel MV ‘Cassiopeia Bulker’ (180,000 dwt, Hanjin H.I., 2011) at approximately $42 mil, while at around the same time financially oriented CarVal Investors acquired MV ‘Mineral Manila’ (180,000 dwt, HHIC-Phil., 2011) at $43 million from Bocimar. As an indication of the present market bifurcation, Turkish interests acquired MV ‘Pacific Triangle’ (185,000 dwt, Samsung, 2000) at close to $17 mil, approximately $5 mil premium over scrap price for a vessel likely to have 5+ years remaining economic life.

The panamax dry bulk market has been experiencing a tough cycle, with very weak rates and many existential questions of the optimal size of a ‘panamax’ vessel in our modern world. In any event, just this week, publicly listed Scorpio Bulkers announced the sale of 81,000 dwt vessel at $30.5 mil to Vita Management in Greece (Hull No 164, Tsuneishi Zhoushan, 2015) – incidentally, this week also Scorpio Bulkers announced the scuttling of a six-vessel capesize order (for the newbuilding orders to be converted for coated aframaxes to be sold to sistership company Scorpio Tankers, another implicit sign of the sorry state of the dry bulk market). Earlier this year, Mitsubishi Corp. sold three post-panamax vessels to Golden Union in Greece at prices reported at approximately $34 mil (Hull No 1623 / MV ‘King Santos’ / MV ‘King Seattle’ 81,000 dwt, STX SB (Jinhae), 2014), making clear the asset price trend since the spring of this year for this asset class (appr. 10% decline). K-Line sold the panamax bulker MV ‘Opal Stream’ (77,000 dwt, Oshima S.B., 2003) at $13.5 mil to BulkSeas, while Daiichi Chuo – still an active seller – sold the vessel MV ‘Mulberry Wilton’ (77,000 dwt, Tsuneishi Zosen, 2004) at $14.5 mil to Greek buyers. As a matter of market trend, back in February 2014, Euroseas acquired the Japanese (Nisshin Shipg. Co.) bulker MV ‘Million Trader II’ at $22.0 mil (77,000 dwt, Tsuneishi Zosen, 2004).

Japanese-built and -owned ultramax bulker ‘Global Success’ in Greek waters (Port of Piraeus) in November 2014… Image source: http://www.basil-karatzas.com

In the handymax / supramax / ultramax markets, the prospects have not been much rosier; there has been a great deal of concern about the outstanding orderbook in the sector, although the economics at present are better pari passu to other asset classes: the freight revenue line is as bad as for bigger vessels but at least the costs basis is of a smaller scale. Crown Shipping sold recently to Ocean Agencies two prompt resales (Hull Nos ZJB-401/-402, 63,000 dwt, Sinopacific, Zhejiang, 2015) at $27 mil, each. In late spring, Da Sin Shipping sold the memorably-named MV ‘Mandarin Wisdom’ (63,500 dwt, Jiangsu Hantong H.I., 2014) at close to $29 mil to Erasmus Investments; at the beginning of 2014, in January, Greek interests acquired MV ‘Dietrich Oldendorff’ (63,500 dwt, Sinopacific Dayang, 2013) at $32 mil; the down-slopping asset trend is obvious since the beginning of the year. Again, Daiichi Chuo has sold MV ‘Sansho’ (55,800 dwt, I.H.I., 2012) at $24.5 mil to European interests; similarly, Japanese-based Noma Kaium sold MV ‘Ruby Halo’ (58,000 dwt, Tsuneishi Cebu, 2011) to First Steamship for $27 mil. For ‘older’ vessels in this sector, K-Line again has recently been active with the sale of MV ‘Mokara Colossus’ (55,800 dwt, Kawasaki S.B., 2006) at $14.5 mil to (again) BulkSeas; British Marine sold MV ‘Gwendolen’ (50,250 dwt, Mitsui Shipbuilding, 2004) at the respectable $14 mil to Gurita Lintas; similarly, LT Ugland Bulk sold MV ‘Emily Manx’ (47,000 dwt, Shin Kurushima, 2001) at $10.25 mil, almost as much as Orient Marine Co. fetched for their MV ‘Pax Phoenix’ (50,250 dwt, Mitsui Shipbuilding, 2001) to Bangladeshi interests. Based on these recent transactions reported, one notices the nature of the sellers (Japanese, predominantly) and the shipbuilding origin of the vessels (Japanese, predominantly again – as there is little tolerance in this market for low quality tonnage); the nomenclature of the sellers re-affirms our earlier comment on FX rates and asset market drivers.

In the handysize market, prominent transactions include the sale of evocatively named MV ‘Brilliant Moira’ (28,500 dwt, I-S Shipyard, 2014) by Aono Kaiun K.K to Greek interests at $18.10 million, and the sale of MV ‘Hudson Bay’ (29,500 dwt, Shikoku Dock, 2011) at $18.4 mil to Dalex Shipping in Greece by Mitsui Warehouse; same sellers have disposed of older vessel MV ‘Durban Bulker’ (32,500 dwt, Kanda S.B., 2005) at $13.5 mil to Taylor Maritime. Phoenix Shipping & Trading has sold the vessel MV ‘Porto Maina’ (18,700 dwt, Yamanishi Zosen, 2008) at $8 mil to European interests. Again, Japanese-originating names dominate sellers and shipbuilders nomenclature.

Volume of transactions overall has been decent and, overall, it’s only marginally lower than 2013 when it was a better market overall. As expected, the beginning of 2014 was more active in terms of transactions, and with the passing of time and asset price declining, volume has been tapering off as well. While overall since 2011 the dry bulk freight market has been improving (Graph 3), the market has been moving within a ‘trading range’, between 1,000 and 2,000 points for the BDI – with the Cape market more ‘expressive’ and reactive, primarily to rhythms from China.

Graph 3: Baltic Dry Indices since January 2011 (data source: The Baltic Exchange)

All eyes are of course on 2015 and many wonder whether the BDI will manage to break out of the ‘trading range’. But again, many wonder whether any of the presents the Three Maghi (Three Wise Men) brought were a ‘market catalyst’ for a better market… gold, frankincense and myrrh don’t seem to be good enough…

Merry Christmas!

S&P, Newbuilding and Demolition Update (September 27th, 2014) – Tanker Market Focus

Posted on September 27, 2014 by Karatzas Marine Advisors & Co.

Since our last week three weeks ago, crude tanker rates have softened with VLCC and Aframax average spot rates at approximately $12,000 pd and Suezmax tankers at approximately $16,000 pd, on the back of weak trading activity. At such levels, crude tanker spot rates stand substantially below the yearly average, and it has to be noted that present VLCC rates are very close to operating break even and far below levels required to pay for the vessel’s financial cost as well. Despite the weakness in freight rates, there has been meaningful activity in the sale & purchase market at strengthening prices, as optimism keeps building that the crude tanker market is well into a structural market recovery, and thus the present weakness in the market is only seasonal. A recent article on Reuters that pressures are building up in the US on allowing crude oil exports can only interpreted as a positive development for the crude tanker markets.

VLCC Tanker ‘Samco Sundarbans’ sold in en bloc transaction to DHT Holdings (Image source: Samco Shipholding)

Double Hull Tankers DHT Holdings (NYSE: DHT) has finalized the acquisition of Samco Shipholding Pte Ltd in Singapore with ownership of seven VLLC tankers with average age of 4.5 years at approximately $322 million; DHT Holdings also acquired in the same transaction and remuneration Samho’s 50% interest in Goodwood Ship Management. The vessels are built at Hyundai Samho and they are MT „Samco Sundarbans” and MT „Samco Taiga” (2012, Hyundai Samho, 318,000 dwt), MT „Samco Amazon” and MT „Samco Redwood” (2011, Hyundai Samho, 318,000 dwt), MT „Samco Europe” and MT „Samco China” (2007, Hyundai Samho, 318,000 dwt) and MT „Samco Scandinavia” (2006, Hyundai Samho, 318,000 dwt). This being a corporate transaction rather than a pure asset acquisition, there have been additional considerations, although DHT Holdings appears to be paying approximately $50 mil below the nominal market value of the vessels. On pure asset sales, BW Maritime of Singapore has sold MT „BW Nyssa” (2000, Daewoo, 299,500 dwt) to Smart Tankers in Greece at $29.5 million, probably at a $2 million premium over the market. The price reveals strong buyer’s optimism as the vessel is due drydock and special survey in January 2015 at a cost of several million dollars while she will be turning the dreaded 15^th anniversary from delivery that puts her on the second priority list of many charterers. The vessel was reported in January 2014 as tied up to a conversion project at $32 million purchase price which transaction apparently has not materialized.

In the Suezmax tanker market, MT „Aegean Navigator” (2007, Hyundai, 159,000 dwt) has been reported sold at $48 million to undisclosed buyers, while other reports state en bloc deal along with sistership MT „Aegean Horizon” and MT „Aegean Dignity” and MT „Aegean Angel” (2004, Hyundai, 159,000 dwt) to clients of Teekay (likely Tanker Investment Limited) at pricing to be confirmed.

In the Aframax tanker market, there has been the sale of coated tanker (LR2) MT „SC Laura” (2001, Dalian New Yard, 109,000 dwt) at $14.5 mil by KGAL to South East Asian buyers rumored to be Indonesians. The price seems to be softer than average which is mostly attributed to the Chinese-built of the vessel and the nature of the seller / transaction, while a week ago, similar tonnage from the same shipbuilder achieved $23.5 mil collectively for MT „Beach 3” and MT „Beach 4” (2000/1999, Dalian New Yard, 109,000 dwt). The Japanese-built vessel MT „SC Sara” (2001, Sumitomo, 105,500 dwt) was sold at $17 million earlier this month to Singaporean-based buyers (Zodiac Maritime), a noticeable ‘premium’ for the Japanese pedigree of the vessel. The still Japanese built MT „Song Lin Wan” (2002, Namura, 106,000 dwt) has been sold by CSDC at $19.5 million to again Zodiac Maritime. For more modern tonnage, it has been reported the sale of Daewoo Hulls 5402 and 5403 with 2015 delivery for coated tankers (LR2) 115,000 dwt at $57 million each to US-based buyers.

As we have mentioned in the past, despite the increased buying interest in the crude tanker market, buyers keep being very price sensitive with strong preference for Japanese or Korean built tonnage, and usually for vessels built in a year starting with ‘2’ getting more of the attention. Given that most banks would not provide mortgage financing for older than ten-year-old tankers, independent tanker buyers paying cash have been very opportunistic on their approach, and any urgency in the sale or other transaction handling mishaps or limitations from the sellers usually end up costing a lower sale price.

The products and chemical tanker market has been selectively active as well, with focused interest in the coated panamax (LR1) tankers and MR pumproom design tonnage. The LR1 tanker MT „Holy Victoria” (2008, Minami Nippon, 75,000 dwt) has been sold at $29 mil to Greece based Prime Marine; the smaller and older MT „Moonlight Venture” (2006, Sumitomo (Yokosuka), 61,000 dwt) achieved $22.5 million by unnamed Greek interests.

BP’s MR2 Tanker ‘British Harmony’ at anchor (Image source: shipspotting)

The MR2 tanker MT „St. Nikolai” (2005, Onomichi, 47,000 dwt) achieved $17.5 million by Indonesian buyers (technical details on the vessel are conflicting, but it seems she’s ‘pumproom design’ which would make her price in line with the market). The older but seemingly more sophisticated tanker MT „High Nefeli” (2003, STX, 47,000 dwt) achieved $15 mil by Greek buyers (Benetech Shipping). MT „British Harmony” and MT „British Chivalry” (2005, Hyundai Mipo, 47,000 dwt) were sold by BP at $19 each with bareboat back to the sellers for two years at undisclosed rate ($8,000 pd bareboat rate some wishfully well-placed reports mentioned) on an operating lease basis. MT „Topaz Express” and MT „Diamond Express” (2009, Minami Nippon, 45,700 dwt) were sold at $22 million each by Daichi Chuo to Island Navigation in Hong Kong. The older MR2 tanker MT „Hellas Progress” (1999, Hyundai Heavy, 46,000 dwt) has been reported sold by Latsco (London) Ltd. to West African interest at $10 million. For modern tonnage, publicly traded companies have also been active with acquisitions in the sector with Scorpio Tankers (Nasdaq: STNG) acquiring from Ceres Hellenic SPP Hull No S5126 on resale basis (2014, SPP, 50,000 dwt) at $37.10 million. Aspiring to soon to file for a public listing, Singapore based Navig8 acquired at $41 million each six MR2 tankers from Wilmar MT „Polaris” (2014, Hyundai Vinashin, 49,000 dwt) and sistership Hull Nos S401, S402, S403, S404 and S405 (2014/2015 delivery, Hyundai Vinashin, 49,000 dwt); the Scorpio acquisition seems to be in-line with prevailing market levels while the Navig8 acquisition seems to be a 10% premium to the market, which is especially interesting given that the shipbuilder is not considered top tier name.

Euronav’s ULCC ‘TI Europe’ taken for storage purposes by China’s Unipec at reportedly $25,600 pd for six months. (Image source: Shipspoting)

Crude oil has been trading in contango recently and a number of crude oil tankers have been reported chartered for storage, including Euronav’s 442,000 dwt ULCC MT „TI Europe” taken by China’s Unipec for six months plus options at $25,600 pd. The level of discount for present delivery of the commodity is still weak to justify a massive storage play and absorption of crude oil tanker supply from the market which hopefully would boost freight rates. The recent strength of the US Dollar reflecting the Fed’s statements about increasing interest rates in the US has had a negative impact of commodities, in part causing the contango, but making commodities less attractive as a storage medium, especially in an increasing interest rate (costlier) environment thus putting a limit to the storage play. On the other hand, increased refining capacity by Middle East refineries seems finally to be having a positive impact on larger product tankers (LR1 and LR2), a story hyped to ethereal existence for several years now. There are hopes that finally there will be impact on the market which could improve asset pricing. The waiving of export taxation on certain palm oil gradients by Southeast Asian countries, most notably Indonesia, in an effort to win market share on the world markets in a bumper crop season for palm oil, hopefully will have a positive effect on IMO III / veg oil chemical tankers.

Honestly, shipping can use all the help it can get in improving freight rates by contango and storage, to increasing refining capacity in Middle East, or fiscal strategy to move around record levels of vegetable oils.

S&P, Newbuilding and Demolition Update (August 29th, 2014) – Tanker Market Focus

Posted on August 29, 2014 by Karatzas Marine Advisors & Co.

Since our last report, apologizing-ly more infrequent than we would prefer, the tanker market has been holding fairly well and better in comparison to the dry bulk market. Tanker freight rates have been holding at respectable levels for most of the time year to date, and above operating break-even for most of the sectors and most of the time. Clean product tankers seem to be the weakest link with freight rates well below $10,000 pd (the tremendous ordering and ‘me too’ mentality has finally caught up with the market); on the other hand, gas carriers – especially for long range tonnage, freight rates have been setting new highs on a casual basis – as high as $100,000 pd for certain vessels, on the back of increased trade, increased production and steady demand and constrained tonnage availability, at least at the moment. Mainstream crude tanker vessels have been holding their values surprisingly well, especially for modern tonnage.

China has been increasingly dependent on more crude oil imports: while monthly Chinese crude imports fluctuate based on inventory buildups and refinery expansion, Chinese crude oil imports effectively increased from 4.3 mbpd in October 2013 to 6.1 mbpd in December 2013 to an all-time-high of 6.8 mbpd in April 2014, about 8% growth y/y from 2013Q1. In general, for 2014H1, crude oil tanker rates are at least double the levels from a year ago, with VLCCs and Aframax tankers averaging about $22,000 pd while Suezmax tankers averaging about $25,000 pd in the spot market. Still, these numbers are not terribly healthy and cannot support the cost base of many a modern tanker with high acquisition prices (a VLCC acquired at $100 mil, would need to see close to $50,000 pd in order to support an amortizing mortgage and allow for a single-digit return to investors); again, when these tankers were not making enough money this time last year to pay crewing and insurance, any improvement is godsend. While there are still numerous crude tanker newbuildings on order, in general, the disappointment in the market has spoiled – so far – the appetite for massive orders, and thus the rate of new orders is diminishing at a time when ton mile and demand seems to be holding steady or increasing. The second half of a year is usually more active in movement of crude oil cargoes, thus seasonality is in favor of the market. And looking longer term, crude oil production is projected to increased from about 90 million barrels per diem (mbpd) to 100 mbpd by decade’s end, it has been as reassuring as it can get, given than a couple of years ago nil or ‘negative growth’ was the base-case scenario.

VLCC Tanker MT„Front Comanche”

While in late July 2014, Frontline Ltd (ticker: FRO) opted to compensate Ship Finance International (ticker; SFL) $58.8 million for the early termination of the charter for three VLCCs (MT „Front Opalia”, MT ‘Front Commerce” and MT “Front Comanche” – all built in Japan in 1999) rather than spend more than $10 mil to pass mandatory special survey and drydock (SSDD) for the vessels, and eventually sell the vessels to Sinokor for $23.5 mil per vessel (a slight premium over their scrap value), a still Fredriksen-affiliated tanker company – Independent Tankers Corporation Limited (ticker: VLCCF) has sold the one-year-older VLCC tanker MT „Ulriken” (1998, 310,000 DWT, Samsung Heavy) at $26 million, admittedly a very strong price for her age; the vessel, however, has valid certificates and good survey position till December 2018. Similarly aged VLCC tanker MT „Neptune Glory” (1998, 299,000 DWT, Daewoo) has been sold at a softer price of $24 mil, with class certificates and survey position good till April 2018; this sale allegedly should have been at premium pricing given the ‘subjects’ to conversion to offshore asset for Nigerian tender. Although survey position has been getting to be a crucial factor for pricing crude tanker vessels around their 3^rd Special Survey (15^th anniversary from shipbuilder), pricing seems to be vessel and transaction specific, making vessel valuations a rather customized exercise rather then the output of an algorithm. VLCC tanker MT „DS Victory” (delivered in ‘this part of the century’ 2001, 299,000 DWT, Daewoo) was sold to Greek buyers (NGM Energy / Moundreas) at $33.5 million; vessels built after 2000 are priced and depreciated differently than vessels built prior to the millennium, but the MT „DS Victory” seems to be a very good vessel in terms of cargo capacities, specifications and fuel consumption.

Suezmax Tanker MT „Cygnus Voyager”

In the Suezmax tanker market, Chevron Shipping has exercised the option to acquire three Suezmax tankers already under their long-term bareboat charter for an undisclosed remuneration; vessels were owned by Independent Tankers Corporation Limited (ticker: VLCCF) and were MT „Cygnus Voyager” (1993, 157,000 DWT, IHI (Japan)), MT „Sirius Voyager” (156,500 DWT, 1994, Ishibras (Brazil)) and MT „Altair Voyager” (135,000 DWT, 1993, Ishibras (Brazil)); these are 20+ year old crude oil tankers and it’s extremely interesting seeing a major-oil-company-affiliated shipping company ‘coming close’ to such old tonnage, whether chartering or ownership. It’s even more interesting seeing Brazilian-built tankers acquired by a major-oil-affiliated shipping company given than Brazilian-built vessel do not exactly enjoy high reputational respect, primarily in terms of quality of steel plate. Recent Suezmax tanker sales have been the sale of MT „Huelva Spirit” (160,000 DWT, 2001, Daewoo) to Middle-eastern buyers at excess of $18 mil, and the very strong price of MT „Cape Balder” (160,000 DWT, 2000, Hyundai Heavy) from German KG-house for conversion at a very strong pricing in excess of $18 mil. A very interesting sale at the very strong price of $65 mil has been reported in early August of MT „Cap Isabella” (158,000 DWT, 2013, Samsung Heavy); publicly listed Euronav, as the bareboat charterer of the vessel with profit sharing in a potential sale, has confirmed the sale in a press release and their book profit of $4.3 mil but not the actual sale price; as buyer for the vessel has been reported Polembros Shipping of Greece who are known to be opportunistic buyers and very much price conscious, this sale deserves special consideration especially given that the vessel is not ‘eco design’.

Aframax Tanker MT „Maersk Prime”

In the Aframax tanker market, earlier in August, the Chinese-built in 1998 LR2 tanker MT „DL Iris” (100,000 DWT, 1998, Dalian) was sold at the reflectively very strong price of $10.5 mil. However, the vessel has been sold ‘on subjects’ which demand a premium on pricing; further to it, the vessel had underwent her 3^rd SSDD last year at a cost of $4.5 mil with extensive steel place replacing and installation of heating coils, thus the pricing at $10.5 mil is not much flattering or of excess of scrap value (estimated in the $7 mil range) despite vessel certification validity till 2018. Earlier in the year, MT „Maersk Prime” (110,000 DWT, 1999, Dalian) was sold at $12 mil, thus the sale of MT „DL Iris” is not as appealing as it appears on surface; this market is heavily biased against tonnage built in 1998 and earlier. Two weeks ago, Chinese-built modern aframax tankers MT „DT Providence” and MT „Enrica Lexie” (104,000 DWT, 2008, Shanghai Waigaoquiao (SWS, China)) were sold from Italy’s Fratelli Armatori D’Amato Group to two Greek buyers in individual transactions at $33.5 mil each, which appears to be slightly higher than market levels and implying some market optimism. The easiest found comparable sale of Chinese-built aframax tonnage has been the sale of MT „Valdarno”, MT „Vallesina”, MT „Valbrenta” and MT „Valfoglia” (104,000 DWT, 2009, Hudong Zhonghua) which were sold in January this year at $30 mil each from Montanari to affiliates of Teekay (Teekay Investment Limited, ticker: TIL); it would look that the market has been looking up since January for modern aframax tonnage, although the Montanari tonnage was not well marketed for sale or perceived by buyers in January. The slightly older aframax tanker MT „Ambelos” (105,000 DWT, 2006, Sumitomo) was sold by Greek owners (Samos Shipping) to Pakistan National Shipping Corporation (PNSC) at $33 million, a strong pricing, again from quality Japanese-built tonnage. Just a week earlier, still Japanese-built tonnage MT „Morning Express” (105,000 DWT, 2000, Sumitomo) had achieved the rather anemic price of $11.5 mil from Japanese sellers, but again, more often than not, the way a vessel is marketed for sale affects the sale price indeed, irrespective of market conditions or tonnage quality.

The chemical and product tanker markets have been experiencing a rather calm summer; the freight market has been just acceptable and the orderbook has been a concern for many market players, especially for institutional investors who have had been dominating the market spirits of these sectors in a while. An interesting transaction has been the sale of Hull No 5126 (TBN MT „Amethyst” (50,000 DWT, 2014, SPP Shipbuilding) at SPP Shipbuilding in S Korea from Greece’s Ceres Hellenic Group (Peter Livanos) to Scorpio Tankers (ticker: STNG) at $37.1 million. The price seems to be approximately $2 mil above prevailing market levels, but again, in a becalmed market of freight rates un-expectedly low, one needs a transaction that originates waves or even maintaining the status quo that projections had been built upon.

Handy Chemical / Products Tanker MT „Green Stars”

For smaller chemical tankers, the sale of MT „Green Stars” (36,000 DWT, 2001, Daedong S.B., / IMO III tanker) at $12.5 million has taken place into this rather quiet segment of the market; however, the sale seems to indicate a rather strong market for smaller chemical and product tankers; after all, this market has been under the radar as most emphasis on chemical and product tankers has been for tonnage newer than five-years old and mostly for MR2 tanker of about 50,000 dwt.

Given that summer is seasonally the weakest period of the year for tankers and that this time last year (and the summers before) tankers – especially crude oil tankers – were happy to keep busy at any rate, this summer has been encouragingly robust, so much so as to make many investors believe that tankers are long due their place in the sun, especially since this summer sun has been unduly unkind to the dry bulk market, making any comparisons between market sectors much more favorable.

S&P, Newbuilding and Demolition Update (March 18th, 2014)

Posted on March 18, 2014 by Karatzas Marine Advisors & Co.

Since our last Sale & Purchase report in January, the market has kept an active pace with general all market segments showing signs of life, and certain markets even much more so. The prevailing mode is that the world economy is entering a growth phase and that logically shipping would be the major beneficial of it; actually, a lot of market pundits have come to believe that the worst is behind us in shipping, the bottom of the market behind us as well, and now it’s the last chance to get on the boat before she leaves port.

We have been more skeptical than the average pundit – but we have been known to be of a skeptical nature – and we think that the present wave of enthusiasm may be a tad too much given the overall state of the market, still. Since our last report, we have had the opportunity to travel extensively and catch up with shipowners, charterers, banks, vessel managers, etc Certain markets such as older containerships remain abysmally bad, and several independent shipowners have been very concerned about the outstanding orderbook in every sector. Yes, indeed, independent shipowners have ordered vessels as well, but the majority of the ordering has taken place from financial players who have been riding fully the ‘eco design’ wave; to a certain extent, some of these financial players are the tail that wags the dog (rather than the charterers and cargoes) since they have been known to be placing orders and chasing markets that have been neglected during the present boom.

In the most recent developments, while China still remains that 600-pound gorilla that can move the shipping market with just a thrash of the dragon’s tail, there have been signs that the economy is slowing – despite the recently announced 7.5% official GDP growth for the next year; it’s an absolutely great number, but also absolutely interesting are the news that the Chinese government has been slowly devaluing the Chinese Yuan (CNY), that there has been the first major default of a real estate developer company in China for $500 million un-serviced ‘bond’, and that the shadow banking in China stands at an exorbitant $7.5 trillion dollars or about 85% of Chinese GDP (the numbers from last week’s front page graphic of the Financial Times.)

And just last week, Scorpio executed on a really impressive (risky nevertheless) ‘asset play’ maneuver, flipping their seven VLCC newbuilding orders in Korean yards to a US-based buyer (Genmar and/or Peter G.) for a capital gain of about $50 million for holding the orders for just a few short months; the price per vessel has been $105 million or so, about $7 million higher than the newbuilding orders, and the first time in more than three years that a VLCC changed hands above $100 million (actually more than five years, if one were to count only ‘arm’s length transactions’ where there was no involvement of seller / soft finance.) Believe it or not, there was a bidding war among several buyers for these vessels; all the buyers were sponsored by financial players; we caught several ‘old salt’ shipowners scratching their heads on the acquisition and pricing, and we noticed that although the words ‘VLCCs’ and ‘Fredriksen / Frontline’ are synonymous, ‘Big John’ has been conspicuously absent from all the gerrymandering in the VLCC space; either he knows something that the rest of the market doesn’t or the buyers of the Scorpio VLCCs know something that the market doesn’t know. For sure somebody better know more than the market.

Shipping is beautiful industry, and never boring!

VLCC TANKER MT ‘GENMAR ATLAS’

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